Twitter: Fear Not Lock-Up Expiration, Says Topeka; User Growth Will Take Time

By Tiernan Ray

Shares of Twitter (TWTR) are down 54 cents, or 1%, at $48.23, despite an overall upbeat market today, but the chorus of bulls continues to sing, with Topeka Capital Markets’s Victor Anthony today reiterating a Buy rating on the shares, and a $70 price target, writing that investors should take advantage of a lock-up expiration coming on May 6th to buy the stock now.

The first point Anthony addresses is the coming lock-up expiration, which will dump an enormous amount of stock on the market:

Beginning on May 6th, close to 480mm shares, or 81% of the common shares outstanding, will become eligible for sale. We do expect share price volatility tied to the final lock-up expiration given the relatively high valuation and investor concerns on user growth. However, as Twitter executes on MAU growth in particular, we expect demand for the shares to pick up.

Like Deutsche and Susquehanna, Anthony sees some improvement in user growth in time, but he urges investors to be patient:

We currently model MAUs of 249mm in 1Q14, which would represent net adds of 8mm, slightly below the 9mm net adds reported in 4Q13. We believe our user growth estimates are at the low end of consensus. For user growth to reaccelerate (30% YoY in 4Q13), Twitter would have to report MAUs above 265mm, or above 24mm net adds, which is unlikely, in our view. While efforts to drive active user growth and retention are in place, and we expect more in the future, we believe those efforts are likely to take more than one quarter to bare fruit. The media-forward initiatives (increases retweets and favorites), Magic Recs, email marketing to existing users, importing of contacts, and profile redesigns, all collectively should, overtime, lead to active user growth acceleration. The free marketing Twitter gets from TV Networks should aid with new user growth and help Twitter achieve mainstream status.

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Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.